DALLAS CHAPTER 13 BANKRUPTCY ATTORNEY: Debtors in Chapter 13 bankruptcy file a repayment plan with the Court that states which creditors will be repaid and the terms of the repayment. The plan is reviewed by the Trustee and the creditors who may or may not file an objection to confirmation of the plan. Objections to confirmation ask the bankruptcy judge to not approve the Chapter 13 plan. Usually these objections are filed because the Trustee believes that the plan doesn’t meet the requirements of the Bankruptcy Code or the creditors don’t like their treatment in the plan. Objections to confirmation can be resolved by a hearing in front of a bankruptcy judge but usually they are resolved by agreement before the hearing. Once all of the objections to confirmation are resolved, assuming the plan meets the other requirements of confirmation, such as the debtor having paid all payments due under the plan at the time of confirmation, the bankruptcy judge will sign an order confirming the plan. Confirmation makes the plan an order of the court rather than just a proposal of reorganization of debts by the debtor. A confirmed plan changes the creditor’s rights and sets forth what the debtor must do in order to receive a discharge in the bankruptcy case.
Tag Archives: Chapter 13 Title 11 United States Code
NORTH TEXAS BANKRUPTCY: WHAT HAPPENS TO MY TAX REFUND?
Tax refunds are treated differently depending on whether you file Chapter 7 or Chapter 13 bankruptcy. In a Chapter 7 case, if a debtor files a tax return before filing bankruptcy but receives a refund after their bankruptcy case is filed, they may have to turn the refund over to the bankruptcy trustee so that the funds can be paid to the creditors in the case. In general, the best strategy for protecting your tax refund in a Chapter 7 bankruptcy case is to file the case after you have already received the refund. Once you have the refund in hand, check with your attorney to see if the money can be exempted from the bankruptcy estate and if it cannot be exempted spend it on reasonable and necessary expenses before the bankruptcy case is filed.
Chapter 13 bankruptcy cases last from three to five years, so in these types of cases it is less about the timing of when you receive the refund and more about how much is received. The Chapter 13 Trustees in Fort Worth, Dallas, and in Plano, which preside over Chapter 13 cases for nearly all residents in the Dallas/Fort Worth area, will allow you to keep the first $2000 of a tax refund. Any additional amount is retained by the Trustee and applied toward claims filed by unsecured creditors in the bankruptcy case. In some cases this means that the debtor will finish their bankruptcy case sooner.
FILING BANKRUPTCY TO STOP GARNISHMENT OF ACCOUNTS AND WAGES
Debtors who are having their bank accounts or wages garnished may be able to stop garnishment by filing bankruptcy. Whether the garnishment can be stopped depends on the reason for the garnishment. Garnishments due to collection of judgments, collection of student loan debt, tax liability, and arrears due to domestic support obligations can all be stopped by filing Chapter 13 bankruptcy. However, garnishments due to ongoing domestic support obligations that are court-ordered will not be stopped by filing bankruptcy. In some circumstances, bankruptcy filers may even be entitled to get back funds that have already been garnished.
However, filing bankruptcy to stop a garnishment does not necessarily mean the debt will not have to be paid. Domestic support obligations, income tax liability, and student loans are usually nondischargeable, meaning that they will have to be paid back eventually. In chapter 7 bankruptcy the garnishments stop for the duration of the bankruptcy, which is usually three to four months. In chapter 13 bankruptcy, garnishments stop for the entire three to five years, but child support arrears and income tax must be included in the chapter 13 plan, meaning they get paid back over the course of the bankruptcy in the debtors chapter 13 plan. Usually this repayment is stretched out over a longer period of time than the repayment plan under the garnishment which allows debtors to pay less per month than they were when the debt was being garnished. Student loan garnishments are stopped as well, and repayment of the debt may be deferred until the bankruptcy case is completed, unless the debtor has sufficient funds to pay student loan creditors in the bankruptcy.
BEFORE GETTING MARRIED YOU MAY WANT TO CONSULT A BANKRUPTCY ATTORNEY
Marriage can offer many financial benefits, including tax advantages, two incomes, and someone to share expenses. Unfortunately, getting married can cost you a great deal if you need to file bankruptcy. Getting married can make a person ineligible for Chapter 7 bankruptcy and increase their payments in Chapter 13 bankruptcy. I’m going to use an example to explain why this is the case.
Jan is single with no children. She earns $30,000 a year, and has $25,000 in credit card debt. Based upon her income, she is eligible to file Chapter 7 bankruptcy. Before filing Jan marries Kevin. Kevin earns $60,000 a year and has no debt. After marrying Kevin, Jan consults a bankruptcy attorney to file a Chapter 7 bankruptcy case. She intends to file by herself, since Kevin has no debt. Unfortunately, The Bankruptcy Code requires that the Debtor’s household income be considered when determining eligibility to file Chapter 7 bankruptcy. Jane may have qualified for Chapter 7 bankruptcy when she was single, but since Jan and Kevin have a combined income of $90,000 a year, Jan no longer qualifies for Chapter 7 bankruptcy.
Jan and Kevin have limited options now. Even with a household income of $90,000 a year, it is going to be difficult to pay off $25,000 in high interest credit cards. Jan consults a bankruptcy attorney to learn about Chapter 13 bankruptcy. In Chapter 13 bankruptcy, a debtor makes a payment each month to a Trustee, who then takes that money and disburses it to the creditors. The payment amount is dependent upon the household income of the Debtor. If Jan files Chapter 13 bankruptcy individually her payment amount is going to be calculated using the household income of $90,000 a year. That means that Kevin, who did not incur the debt, and who isn’t filing bankruptcy, is going to be the one repaying Jan’s creditors in her bankruptcy case.
There was an easy way to prevent this situation from happening. Jan should have filed Chapter 7 bankruptcy before she got married. It is likely that she would have received a discharge in about four months after filing and been debt free when she walked down the aisle. If you have debt, and are considering getting married, call your bankruptcy attorney before you tie the knot.
STUDENT LOANS -YOU MAY WANT TO PAY IN YOUR BANKRUPTCY CASE
Student loans are a peculiar sort of debt in the context of a Chapter 13 bankruptcy case. They are unsecured which entitles them to low priority for repayment in Chapter 13 plans, yet they are nondischargable, meaning the student loan debt survives the bankruptcy discharge. Because of these two traits, it is very important to pay special attention to student loan debt in Chapter 13 plans.
To understand why, we need to consider how unsecured claims are paid in Chapter 13 plans. In Chapter 13 bankruptcy cases, unsecured creditors aren’t always entitled to receive payment. If and how much an unsecured creditor will be paid depends on the disposable income available to the debtors. Unsecured creditors do not automatically receive payment in Chapter 13 bankruptcy. Rule 3002 of the Federal Rules of Bankruptcy Procedure states that in order to receive payment, creditors have to file a proof of claim, which basically is documentation proving what they are owed and why. If the creditor doesn’t file a proof of claim, they don’t get paid.
In my experience, student loan creditors are especially lazy about filing proof of their claim. Their claims are nondischargeable, so even if they don’t file a proof of claim they will get paid eventually. However, whether or not a student loan creditor files a proof of claim can be very significant to a debtor. Let me give you an example. John owes $100,000 in unsecured debt. $40,000 of that debt is student loan debt. Based upon his disposable income, he potentially will have to pay back $60,000 (60% of the total) to his unsecured creditors in his Chapter 13 plan, depending on how many of them file proof of claim. If all of his creditors file proof of claims, he will pay back 60% of his total unsecured debt. The student loans will be paid back 60% ($24,000) of their claim in the plan, and the remaining creditors will be paid back 60% ($36,000) of their claims, for a total of $60,000. After his bankruptcy he will still owe $16,000 of student loan debt (the amount of student loan debt not paid in the bankruptcy) because this debt is nondischargable, but the remaining $24,000 of other unsecured claims will be discharged, meaning John will not have to pay back those debts. John’s total payments to his creditors will be $60,000 in the bankruptcy case and $16,000 afterwards, for a total of $76,000.
But look what happens if the student loan creditors don’t file a proof of claim. The student loan creditors will receive nothing, but the other unsecured creditors are paid in full, meaning that John will have paid $60,000 in the bankruptcy case to his unsecured creditors, and still owe $40,000 to the student loan creditor after bankruptcy, for a total of $100,000. So, how can we make student loan creditors file a proof of claim? We can’t. But Rule 3004 of the Federal Rules of Bankruptcy Procedure allows debtors to file a proof of claim on behalf of creditors when they fail to do so. So as you can see, attorneys should pay special attention to student loan debt in Chapter 13 plans.